When the government announced in 2018 that foreign investors into the UK property market were to be targeted with an additional SDLT levy, we said that the devil would be in the detail. The consultation document published this week gives that detail. But just how devilish is it?
The government is going ahead with a 1% SDLT surcharge on top of the existing SDLT rates for non-UK residents purchasing residential property in England or Northern Ireland. Both freehold and leasehold interests will be caught but existing reliefs will generally apply as normal. Indeed, the distinct lack of specific reliefs from the new charge is straightforward (if likely to be unpopular). Mixed use schemes and purchases of 6 or more dwellings will at least continue to be treated as non-residential and therefore outside the scope of the surcharge.
Multiple Dwellings Relief will also be available. The government states that the minimum rate of 1% of the total amount paid will remain at the same level for those subject to the surcharge. This would appear to mean a minimum effective rate of 2% for non-residents benefitting from the relief once the surcharge is applied, although clarification of what is intended will be needed.
However, the surcharge looks set to add a further layer of complexity to the myriad of SDLT rules. In terms of calculating the amount due, adding 1 percentage point to the rate may sound simple. But once you factor in the surcharge, there will be (at least) 32 different permutations as to the rate of SDLT payable on a purchase of freehold residential property. The top rate of SDLT will become 16% for those within scope.
Given that it is branded a non-UK resident surcharge, you would be forgiven for thinking that it would not complicate things for a UK resident purchaser. Not so. The rules propose introducing either new or modified tests of residence for these purposes. (Ironically, using the existing tests was seen as too complicated.) An individual who is UK resident for income tax purposes could therefore still find themselves non-resident for SDLT purposes. Non-UK resident companies are in scope but closely held UK companies can also be caught if a non-UK resident could exercise control over them.
Even the government’s stated aim of helping to control house price inflation seems fraught with difficulty. Reliably predicting the impact of tax measures on house prices is notoriously difficult at the best of times. At least the rules are not coming in until a future Finance Bill (which year is not stated). Hopefully this will allow time for a bit of a re-think about the complexity of the SDLT rules for residential projects, which will only be made worse by this proposed charge.
The consultation can be accessed here